According to market expert Richard Russell, the Fed and other officials are fighting global deflation. He continues on to say that the whole world is in search of income and safety and the only way to get this is to buy and hold gold and exercise a lot of patience.

With global markets trading in a sea of red, the Godfather of newsletter writers, Richard Russell, issued the following warning: “... it is dawning on Bernanke that the Fed cannot defeat the powers of deflation and the primary bear trend ... and Bernanke knows it, but cannot talk about it - it's too frightening.” Russell also discussed gold at length, but first, this was Russell’s disturbing conclusion regarding the precarious situation we face: “The Russell view -- The Fed and all central banks are fighting the implacable forces of global deflation. This is really the primary bear trend that I've been writing about. It's the result of a fundamental change in the world markets. Suddenly, within the space of a few years, Asia has entered the global economy.”

Richard Russell continues:

“The world is now producing far more goods (and more competitively) than ever before. I think deep in his heart, Bernanke knows and understands this. As a result, he does not want to use all the possible anti-deflation ammunition that the Fed can muster. The reason -- it is dawning on Bernanke that the Fed cannot defeat the powers of deflation and the primary bear trend.

The result is that the sinking economy is actually producing signals ahead of the Fed, and Bernanke knows it, but cannot talk about it - it's too frightening. Now Bernanke is playing for time. He's hoping that somehow, some way, the US economy will not get worse and that it might even improve slightly. Bernanke is worrying about the Fed's bulging balance sheet. It's so huge, how will he ever contract it?

In the meantime, the stock market is more puzzled than ever. With uncertainty looming large, the market backs off. It is giving up on QE3. In the absence of QE3 the market does what it always does to protect itself, it backs off.

Sadly, the whole world is searching for income and safety, and the fact is that there is no income and there is no ultimate safety. Then how does one build wealth? The Asians know the answer to that -- YOU BUY and HOLD GOLD -- and exercise a lot of patience.

Stocks can declare dividends, but they can omit their dividends during hard times. Furthermore, stocks can go broke. But gold represents indestructible wealth. Gold rises in terms of fiat money, and gold declines in terms of fiat money.

Gold possesses some properties that are beyond the scope of other investments. Gold can't go broke, because gold does not derive its purchasing power from the edict or control of any sovereign power or central bank. Gold has no counter-parties. Gold is tangible and is accepted everywhere -- in good times or bad. Gold exists outside the world's banking system. Unlike fiat money, gold is wealth on its own.

It's tangible and not the fantasy-creation of central bankers. Gold does not need a sponsor or the acceptance of an expert (such as pricing a Picasso painting), because all gold is intrinsically the same. Gold does not tarnish nor does it degenerate -- the gold in your watch may be the same gold that Cleopatra wore around her neck.

The supply of gold, unlike paper money, is limited. Alchemists have tried for centuries to turn other metals into gold -- but have never succeeded. Gold is a beautiful metal on its own and the lust for gold seems to be built into the DNA of mankind. If you own ten thousand ounces of gold, you can say that you will ALWAYS be wealthy.

I have said before that China intends to be THE world leader. In order to make that happen, China has decided to defeat the US on economic terms. And that means -- first, replacing the US dollar as the world's reserve currency, and establishing the renminbi as the world's new reserve currency. For the last two years, China has encouraged its people to accumulate gold on their own.

It is clear that China intends to be the world center for buying and selling gold. China is also placing vending machines in various strategic areas, which will allow people to buy small quantities of gold at their leisure, just as if they were buying chewing gum.

The plus in all this for Americans is that the price of gold will be out of the grip and manipulations of the Federal Reserve and the Comex. It is well known that the Fed despises gold, because gold is out of the of the Fed's control. Furthermore, gold competes with the Fed's own fiat currency. The value of gold never changes. What changes is the number of dollars that are required to purchase a specific quantity of gold.

Note on the chart below (from Google) that China is a minuscule holder of gold compared with Western powers. For instance the US holds 8133 tons of gold while China holds a mere 1054 tons of gold. China means to change this ratio. Actually China's ratio of gold to currency is a tiny 1.7% while the US ratio is above 74%.”

When I used to write many years ago, Russell once referred to me as Eric the “King.” But the truth is there is only one “King” of financial writers, and his name Richard Russell. This man is well into his 80s and he survived bombing missions against the Nazis and the Great Depression. This ongoing financial catastrophe will be one for the history books, thank God Russell is still around to give us his thoughts as we move through this cycle.